Securities Transaction Tax (STT):

STT is levied on stocks and equity mutual funds in lieu of tax-free dividends and also lower capital gain taxes. Equity mutual funds are defined as schemes that maintain more than 65 percent equity exposure and because of that, equity oriented balance funds and arbitrage funds also comes under this category.

Indexation Benefit:

While computing long-term capital gain (LTCG), indexation benefit is provided as compensation against inflation. For example, if the LTCG is 10 percent per annum and the inflation is 7 percent per annum, you need to pay tax only on 3 percent additional gains. Indexation benefit is not available for instruments that have interest components.

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